Thursday 3 November 2011 06.53 EDT
First published on Thursday 3 November 2011 06.53 EDT

Fracking for shale gas can cause minor earthquakes in Lancashire, we learned on Wednesday. But the bigger question is whether it can cause a major upheaval in the UK and European gas market?

Shale gas supporters envisage plentiful, cheap and secure gas powering the UK for decades, while green campaigners attack its potential to harm local environments and, once burned, the global climate.

However, for a really clear-eyed judgement on this, let's turn to an investment analyst. I think they are good guides, as their motivation is crystal-clear: will it make money? Deutsche Bank's special report, A first look as EU shale gas prospects, was published on 20 October and concludes:

"Those waiting for a shale gas 'revolution' outside the US will likely be disappointed, in terms of both price and the speed at which high-volume production can be achieved.

That's a bucket of cold water to cool the ardour of shale gas fans, but why did Deutsche Bank reach this conclusion? They won't put the report online, so I'll give you their reasons in their words.

Prime among the uncertainties are the size of the recoverable resource, the rate at which production can be achieved, and the extent to which the concerns of local residents and environmental groups can be accommodated.

Owing to advantages in drilling-services infrastructure, mineral-rights law, and population density, the US is arguably better suited to the rapid development of shale-gas resources, implying that the rate at which shale-gas resources can be exploited elsewhere in the world will be more drawn out.

What that means is that the US has plenty of rigs at hand, making drilling cheap. The analysts estimate post-tax breakeven costs for shale gas would be twice as high in the UK as in the US. Also, unlike elsewhere, in the US landowners own the mineral rights and not the government, meaning they have a much bigger incentive to drill.

Lastly, Deutsche Bank also raise the issue of population density:

In the UK, with a population density of 259 people/km² - compared with the US, 34 people/km² and China, 139 people/km² according to July 2011 estimates from the CIA World Factbook - the impact to the landscape and quality of life of drilling operations will likely be felt more acutely ...This may make it difficult and time-consuming to acquire local planning permission. We believe this is a real issue.

Now, having said all this, there remain serious and influential people backing shale gas. Energy policy academic Dieter Helm argues strongly that it can cost-effectively help the UK bridge the gap between the closure of the UK's dirty coal and ageing nuclear plants and a full roll-out of low carbon generation, including renewables, new nuclear and carbon capture and storage. (Though I don't understand how Helm can castigate Chris Huhne for allegedly predicting future energy prices, then asserting himself that gas will be cheap.)

The Conservative MP Tim Yeo, chair of the House of Commons energy and climate change committee, also thinks shale gas will be important: "I think we will have a dash for gas," he told me. "Shale gas is a game-changer to an extent not so far widely understood."

"We couldn't meet the UK's 2030 carbon targets with a dash for gas, but we could meet the 2020 target," he added.

The risk of using gas a bridge fuel is that those gas plants would have to be closed down before the end of their lifetimes in order to keep to carbon budgets, so-called stranded assets. (I wrote about this before.)

Yeo's response is straightforward: "Investors will have to put a price on that risk." He also said CCS development must switch its focus from coal to gas, which I guess will be easier to do now the government's plan for the first CCS demonstration plant has collapsed.

I'll leave Deutsche Bank to sum up:

Whilst we think that EU shale-gas deposits certainly have the potential to contribute meaningfully to indigenous production over the next 10-20 years, we do not expect the impact of shale-gas production on EU gas prices to be anywhere near as great as has been the case with US shale-gas production.